Everything You Need To Know About The VAT Retail Export Scheme

In September, the UK government announced its decision to abolish the VAT Retail Export Scheme. VAT RES is scheduled to end from 1 January 2021, it has enabled foreign visitors to purchase goods and claim back VAT, allowing holidaymakers to enjoy shopping in the UK at a cheaper price than at home.

The Scheme has enabled tourists to buy from the UK's diverse retail options: not just London's West End, but the tourist hotspots of Liverpool, Manchester, Brighton and Edinburgh, including the UK's unique heritage brands and 59,000+ SMEs who make up the majority of the UK fashion industry. Promoting the UK's retail offerings, then, is all too important in a week when Vanners - the oldest UK silk weavers - have called in the administrators.

The Chancellor Rishi Sunak has proposed to end this Scheme, not only for international tourists but also for those from the EU post-Brexit. If you are going on spreadsheet economics, it is arguable that this will allow for an increased VAT revenue to help mitigate against a post-pandemic recession, adding much-needed income to the exchequer's coffer. However, the argument that by removing this incentive to shop in the UK will add income to UK GDP falls apart when you drill down into the numbers.

According to a recent report from the Centre for Economics and Business Research, Government plans to end VAT-free shopping for international visitors would result in up to 180,000 job losses, reduce non-EU visitors to the UK by 7.3 per cent, and result in an estimated total decrease in spending by tourists by up to £1.8 billion (markedly more than the entire UK fishing industry's value to GDP). The report finds that tax-free shopping supports £3.5 billion worth of tax-free retail sales, and if extended to EU visitors, this would rise to around £7 billion.

If these figures are broadly accurate – which industry stakeholders and trade bodies are adamant they are – it is easy to understand why retail, a sector that has already been hit hard by the impact of the Covid-19 pandemic, feel the Government’s decision to withdraw the Scheme for foreign visitors could have disastrous consequences.

The decision to remove the VAT Retail Export Scheme will impact other key sectors, too. The tourism and hospitality sectors have downward spiralled this year, with massive job losses forecast across both sectors. Undoubtedly, the hits those sectors have faced are inextricably intertwined with the volume of retail sales to tourists and, for the first time, travel to Charles de Gaulle in Paris had overtaken Heathrow this year.

At a time when the UK's international allure may be fading in comparison to our Europe neighbours, it is unwise for the Government to give international visitors more reasons to spend elsewhere. But the Government's decision to withdraw the VAT Retail Export Scheme puts the retail, tourism and hospitality sectors at risk as a time when they're already reeling from the combined impact of Covid-19 and Brexit.

We will see a reduction in longer stay trips by tourists once the globe reopens for travel next year if this goes ahead, as the canny shopper will do the maths on staying in Paris, taking the train to Milan and shopping in mainland Europe, with perhaps just a day trip to London - if they can swerve the post-Brexit queues at Eurostar - versus these tourists flying into London, staying at hotels in the capital, before travelling to tourism hotspots across the UK, eating, drinking spending in the UK for the majority of their trips.

Glasgow Airport alone stands to lose £8.6 million in revenue and 170 retail jobs as a result of the decision. Derek Provan, CEO of AGS, the company that owns the Glasgow and Aberdeen airport terminal retail outlets, has urged the UK Government to think again. He said in the Daily Record: "This is yet another potentially damaging blow for our airports at a time when we're dealing with the devastating impact of coronavirus on our sector. Tax-free sales generate more than £10 million per year for our airports, which is used to re-invest in the routes that support the wider economy. Without that income, not only will it severely hamper our ability to regrow once we emerge from this crisis, it will result in further job losses."

The Government earlier today sent Fashion Roundtable this response: "Since the announcement on 11 September HM Treasury, HMRC officials and the Exchequer Secretary to the Treasury have met with a range of industry bodies to discuss the rationale for the withdrawal of the VAT RES. The Government is clear that these changes will apply on 1 January 2021, but continues to invite views and ideas which help meet the Government’s objectives in this area." We will be contacting HM Treasury again about this issue and if you would like to add your thoughts, please email admin@fashionroundtable.co.uk.

Tomorrow sees the Chancellor's Spending Review when he will unveil his economic plans. It is unclear whether he will u-turn on this proposal. We hope for the sake of our retail business, jobs and the return of hospitality and tourism, it does.